Ap_att03

Controlled foreign company

If you are an attributable taxpayer, is it a CONTROLLED FOREIGN COMPANY?

If the company paying you the dividend is NOT a controlled foreign company, you can forget about these provisions

If you are an attributable taxpayer, is it a CONTROLLED FOREIGN COMPANY?

Sec 340 defines a CONTROLLED FOREIGN COMPANY but before we look at it, let's just sort out a few of the terms used in the definition.

A LISTED COUNTRY is one with a comparable tax system to that in Australia.

A list of such countries is found in regulation 152J, schedule 10, which is reproduced at para 21-130 CCH Master Tax Guide.

The way the income of the controlled foreign company is treated will depend on whether the company is resident in a LISTED or UNLISTED country.

AUSTRALIAN 1% ENTITY is defined in sec 317 as an Australian entity whose associate-inclusive control interest in the company or trust is at least 1%

Do you remember what ASSOCIATE INCLUSIVE CONTROL INTEREST means?

It is defined as,

the AGGREGATE of the

DIRECT and INDIRECT CONTROL INTERESTS...

held by the taxpayer and his associates. (see last topic for more details)

If you've got all that you are ready for the definition of a controlled foreign company.

What is a controlled foreign company?

A CONTROLLED FOREIGN COMPANY is defined in sec 340 as ....

a company that is a resident of a LISTED COUNTRY or an UNLISTED COUNTRY

and to which any of the following conditions apply....

1. ASSOCIATE-INCLUSIVE CONTROL INTERESTS of not less than 50% in the company held by a group of 5 or fewer AUSTRALIAN 1% ENTITIES.

In other words, 5 of fewer Australian residents, each of whom has at least a 1% control interest, have or are entitle to acquire at least a 50% associate inclusive control interest - para 21-150 CCH Master Tax Guide.

2. There is a single Australian 'assumed controller' whose ASSOCIATE -INCLUSIVE CONTROL INTEREST is not less than 40% ...and.

the controlled foreign company is not controlled by an unassociated entity which excludes the 'assumed controller' or it's associates.

3. The company is controlled by a group or 5 or fewer Australian entities.

In other words, 5 or less Australian entities have ACTUAL control

If the company paying you the dividend is NOT a controlled foreign company, you can forget about these provisions, and just return your foreign dividends and trust distributions when they are declared by the directors or trustees.

Refer para 21-150 of CCH Master Tax Guide for details.